Bankruptcy

What Happened to Truth-in-Lending?

By Elizabeth Warren

Professor Lynn LoPucki sent this email, which I pass along with his permission. Perhaps someone will want to answer his question.

Last  month I was a little short of cash, so I left $3,000 on my credit card balance. The bill I got today shows a finance charge of $122. Citibank states that the APR is 14.49%, but by my calculation, the rate charged is 48.8%.

They apparently get their number by multiplying last month?s entire bill ? not the amount left on the bill ? by the APR. But (1) I didn?t have the whole amount outstanding for the entire month and (2) they don?t charge any interest at all if I pay the entire bill on time.

As I recall, a main purpose of the Truth in Lending Act was to make interest rates comparable by requiring that they call be calculated in the same manner ? one that reflects as nearly as possible the true cost of borrowing.  Where exactly did that purpose go astray?

Full post as published by Credit Slips on October 23, 2008 (boomark / email).